ING Bank launches synthetic ABCP

Dutch financial institution ING Bank has prepared an asset-backed commercial paper conduit called Simba Funding Corp., which will provide credit default protection on the bank's assets. The unusual structure, not seen on the ABCP market for almost four years, appears to be a show of confidence that the country's banking regulatory policies will welcome synthetic ABCP structures under Basel II.

Simba Funding Corp. has a program limit of 40 billion ($50.7 billion), which can be issued in Europe or the U.S., according to people familiar with the situation. The vehicle will issue asset-backed commercial paper and use the proceeds to make loans to an SPV called Stichting Simba Securitization. The SPV will then use the loan proceeds to either purchase ING Bank's assets, or provide credit default swap protection to the bank referencing its assets.

"In that respect, it is a fairly interesting and unusual structure," said Edward Manchester, a vice president and senior credit officer in Moody's Investors Service's London office. The arrangement means that ING Bank does not have to provide a liquidity facility for Simba Funding, which is a big advantage, said Manchester.

Simba Funding is also unusual because only a small number of vehicles use the structure, and it has not been seen in new ABCP conduits for about four years. ING Bank itself used the synthetic ABCP structure just one other time, on its Mane Funding Corp., launched in 2002. Others include Rabobank Nederland's Atlantis and Ixis's Direct Funding.

As for how Simba Funding is compatible with more customized Basel II regulatory capital requirements, the CDS is fully cash collateralized, and the risk is transferred to the conduit. ING Bank can receive off-balance sheet treatment for regulatory purposes. There was some question as to whether capital relief would apply under the new Basel Capital Accord, said market sources.

"Now that we have Simba, it indicates that at least under the Dutch regime, there is life for these structures under Basel II," said someone familiar with the situation.

The credit rating agency gave Simba Funding a P-1 rating. For one, Simba Funding will not have to absorb all of the credit risk in the reference portfolio. Two other SPVs, Stichting Memphis and Stichting Mars, will provide separate CDS. If assets default, payments from these SPVs must reach a specific threshold before Simba Stichting Securitization is called upon to make payments.

The cash collateral is available to make credit protection payments under the credit default swaps and if Simba cannot issue ABCP, it can be used immediately to repay maturing ABCP.